As investors we are greedy. We just want to get returns. But has anything good come without risks? Today you start investing with a belief to see wonders and make more money than what you have. When the market is at peak your emotions of happiness too are at a peak. However, when the market cycle does not remain the same, you tend to feel various emotions. Markets tend to fluctuate due to various factors such as demand and supply for various financial avenues, government regulations and other macroeconomic factors.
In the past years, the Indian stock market has seen a lot of changes. But the market has always risen. Read on to see which of these you relate to the various emotions that many other investors go through during the changes in market cycle.
This is a stage which every investor would wish lasted forever. The market is at boom and individuals start purchasing more stocks. Companies too start making higher profits. Just like all the other systems that have a cycle, this cycle too takes a rotation from time to time. Let’s see some of the few emotions that many of us as investors have gone through when the market is at peak:
When the market is at its peak, we often wait to purchase more equities at discounted price rates.
Many of us tend to be overwhelmed to have the stocks which are performing well in the market.
Those who have purchased the equities at a higher price further wait for the prices to go down. Thus, it helps them to average out the cost spent in purchasing.
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When the market rises, the situation can be referred to as a bull run. This is the period when stock prices start to rise. Thus, the inflation levels are low and the interest rates fall. During this trend, individuals feels optimistic.
When the market rises, some individuals start investing in equities right away. They do not want to face the fear of missing out.
Different individuals react to situations differently.When the market is on rise some individuals may wait to buy when the market becomes more steady.
If you have a less risk taking nature, you observe the market a little more. Then you decide to take actions.
3.Trough market cycle:
A market trough is referred to as a cycle between the declining stage and expansion stage. During this stage, the income levels fall too and recession begins. Let’s see the different emotions felt by investors during this period:
If you have started to invest recently and a market trough happens, you feel sad. Many investors tend to feel negative in such a situation. You will also decide to never invest in stocks again. But before you do so, ask yourself this question. Is taking a decision in haste going to help?
If the stock which you had purchased falls miserably, you will feel extreme sadness due to loss of your money. This is an emotion which many investors go through. Let’s say for example during the Lehman crisis (2008) or the Harshad Mehta scam (1992). During these times a lot of investors even went through trauma due to the market fall.
There are individuals who are never interested to invest in equities because of factors like risk and uncertainties. Thus, in this case an individual who observes the market in trough may feel that other investors should learn from past experiences of market trough.
When the market falls, the stock prices decline continuously (over 20% from their peak). If this period continues for a long time, it is called a bear market. During this period, there is an economic downturn and individuals are pessimistic. Some of the emotions undergone by investors in this period are:
When the market falls, some investors start looking towards the long term rather than focusing on the short term losses. Are you also one of them?
Do you panic when the stock prices crash? As an investor, you may sell your stock when the stock prices go up in the market.
This is when investors just give up without any further thoughts. They become stressed about the fact that the stock market has reached rock bottom. Is giving up a good thing though? Many patient investors have seen the returns of staying invested.
Thus, these are a few emotions, which different investors go through during the market cycle changes. Do not let your emotional cycles be dependent on these market fluctuations. Which of the above emotions did you relate to as an investor? If it was panic you must remember that the stock markets will rise. Fluctuations are a part of growth.
Stay invested and be a positive investor. Head to a financial planner now to start investing.